UBS Ousts President After 7 Months in Job

By EDMUND L. ANDREWS with ANDREW ROSS SORKIN

Published: December 19, 2001

PARIS, Dec. 18—
UBS A.G., the Swiss banking giant with an expanding presence on Wall Street, surprised financial executives on both sides of the Atlantic today by firing its British president just seven months after he took the top job.

UBS officials tersely attributed the ouster of the president, Luqman Arnold, to ''differences of opinion.'' But industry executives, both inside and outside the bank, said Mr. Arnold's downfall was his inability to balance tensions between his Swiss banker bosses in Zurich and his deal-making executives on Wall Street.

In October, for example, Mr. Arnold is said to have angered his Swiss board as well as his Wall Street investment bankers during an episode in which UBS, after advising its American client, Echostar Communications to buy Hughes Electronics and its satellite television business, refused to approve a bridge loan that was crucial to Echostar's $30 billion bid.

It was Mr. Arnold who opposed making the loan, executives at the bank said, despite support for the deal from the UBS chairman, Marcel Ospel. In an embarrassing twist for UBS, Echostar won the Hughes bidding, but ended up giving the financing to two archrivals of UBS, Credit Suisse First Boston and Deutsche Bank.

Mr. Arnold's ouster reflects an apparent identity crisis for UBS, which like several other major European banks, has badly wanted to crack into the top ranks of Wall Street investment banking. UBS, which already owned Warburg Dillon Read, paid almost $12 billion last year to acquire the PaineWebber Group.

Mr. Arnold, a British investment banker who worked for 10 years in the United States, was an architect of the PaineWebber deal. As the first non-Swiss executive to become president, he seemed to epitomize the rising power within the bank of dealmakers on Wall Street and in London.

Below the surface, though, the situation was more complicated. Despite Mr. Arnold's background as an investment banker, executives at Warburg and Paine Webber viewed him as an agent for conservatives in Zurich who wanted to reduce the bank's exposure to risk after the plunge in the world's equities markets in the last year.

But the bosses back in Zurich were not happy either. Some were convinced that Mr. Arnold, 51, was intent on replacing Mr. Ospel as chairman of the board.

Executives say that Mr. Arnold clashed with Mr. Ospel on many issues, including the diminishing emphasis that UBS was placing on investment banking and its growing focus on private banking and asset management for individuals and firms -- the traditional mainstays of Swiss banks.

But today, UBS executives went out of their way to emphasize that the departure of Mr. Arnold did not signal a change in strategy.

''We regret the necessity to make this leadership change,'' said Mr. Ospel, 51, who had handed over day-to-day operations of the bank to Mr. Arnold in April.

Mr. Arnold was not available for comment today.

Peter Wuffli, a 44-year-old Swiss executive who has been in charge of UBS's asset management business, will take over immediately as president.

''There will be no change in UBS strategy, focus, direction or values,'' Mr. Wuffli told reporters this morning. There are ''no financial, operational or control issues'' behind Mr. Arnold's departure, he continued.

But if there is no change in direction, UBS executives remained opaque about why the board felt it necessary to replace Mr. Arnold so abruptly.

''The board of directors had to take this decision because it felt that some of these disagreements would entail problems for the bank in the future,'' said Christoph Meier, a spokesman for the bank.

One UBS executive, speaking on condition of anonymity, said it would be a mistake to infer that Mr. Arnold's departure was strictly tied to feuding over the Echostar deal.

Another said that investment bankers in the United States were happy about the news, because they viewed Mr. Arnold as more of an impediment than a help.

''He was standing in the way,'' the banker said. ''Luqman would go from pretending he was on our team to turning around and acting like an old-school Swiss banker -- and he's not even Swiss.''

But analysts say it is also clear that investment banking had taken a back seat to private banking and ''wealth management.''

Mr. Wuffli is best known for turning around the asset-management business, which was losing money when he took it over three years ago.

The heart of that business had been UBS Brinson, a Chicago-based money-management firm, run by Gary Brinson, which UBS had bought several years ago. Brinson lost many important clients because its returns were meager in comparison with the explosive growth of technology stocks. But by the first half of this year, UBS Brinson was bringing in more new money than it had during all of 2000.

Mr. Wuffli and other executives said today that they remained committed to an ''integrated model'' of banking, which means viewing the investment banking and money-management as businesses that reinforce each other.

But analysts note that the board in charge of the asset-management business is almost identical to that of the board as a whole.

''Whatever they want to say about it, investment banking is becoming a sideline,'' one analyst said. ''There is no doubt in mind.''

If that is true, UBS is hardly alone. Deutsche Bank, Germany's biggest bank, has publicly placed top priority on its asset-management business as its main source of growth. That reflects the inevitable effects of the gloomy stock market outlook.

Credit Suisse has reined in its investment bankers as well.

Mr. Arnold's sudden removal came as a big surprise to investors, who sold UBS shares in Europe and New York today. UBS shares were down 3 percent, to close at $51.25, on the New York Stock Exchange.

UBS executives said today that the board made its decision on Sunday, but waited until this morning to make an announcement. They declined to explain the delay.

For many who heard the news, the most difficult part to fathom was how Mr. Arnold could so suddenly fall from favor. Like Mr. Wuffli, he came from what used to be the Swiss Bank Corporation, which in 1998 swallowed what is now referred to as the ''old UBS'' and assumed its name.

''It is very unfortunate, but it just did not work out,'' Mr. Wuffli said during his telephone conference with reporters and analysts. ''That's the honest answer.''

Photos: Luqman Arnold, ousted as president of UBS, is said to have clashed with its board. (Associated Press)(pg. C13); Peter Wuffli, 44, will takeover as president of UBS A.G. from Luqman Arnold. (Associated Press)(pg. C1)